In the News

EMERGING MARKETS: Latam Currencies Weaken, but Fed Move Helps Them Off Session Lows

NEW YORK, Mar 19 (Reuters) - Latin American currencies weakened again on Thursday, but the U.S. Federal Reserve's move to give nine central banks, including Brazil's and Mexico's, access to dollars helped them cut some losses.

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The Fed said the currency swaps – in which the Fed accepts other currencies as collateral in exchange for dollars – will for at least the next six months allow the nine central banks to tap up to a combined total of $450 billion. The aim is to ensure the world’s dollar-dependent financial system continues to function in the face of the coronavirus pandemic.

Latam currencies hit session highs after the announcement, as the move helps the Fed manage the rush for the most liquid currency by keeping open a line of easy access to it. FRX/

“The swaps do give financial relief and allows for the dollar dominance to subside. It’s one of many tools they’re throwing at the panic over recession and the depth it could have,” said Juan Perez, senior foreign exchange trader and strategist at Tempus Inc, adding that the relief optimism may not last long.

With more economies going into various degrees of shutdowns, most central bank and government interventions have done little to calm investors. JP Morgan On Thursday said emerging market economies will slip into recession by mid-2020.

Some like South Africa had already slipped into recession in the fourth quarter of 2019. On Thursday, the country’s central bank delivered a 100-basis-point cut, double what was expected, to support the economy. The rand ZAR= cut some losses but then was trading back at levels before the cut.



Reporting by Susan Mathew in Bengaluru; editing by Jonathan Oatis
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